Exclusive: Short-seller Left to seek investor money for fund

(Reuters) - Andrew Left, the founder of Citron Research whose bets against companies from electric car maker Tesla Inc to drug maker Valeant Pharmaceuticals made him one of Wall Street’s most prominent short-sellers, is ready to put investors’ money where his mouth is.

After investing only his own wealth for roughly two decades, Left is speaking to potential investors about launching Citron Capital, his first-ever hedge fund, that will begin trading in weeks, he told Reuters in an interview. The move could give Left more firepower to go after some of the biggest U.S. companies.

While Left will continue to bet against companies, he said he will use the new fund to also bet that some companies’ shares will rise.

“If you find the right thing, it is always the right time for short activism,” Left said. “Fads, frauds and fading businesses are a constant even in rising markets,” he added.

Left, whose scathing reports on companies routinely send stock prices reeling, said he plans to raise “a few hundred million of dollars” from investors. He is expected to put in $10 million of his own money toward the fund, according to an investor presentation reviewed by Reuters.

Potential investors will be required to invest a minimum of $2 million, leave their money locked up for one year, and pay standard hedge fund industry fees of a 1.5 percent management fee plus a 20 percent cut of the profits to Left, according to the investor prevention.

Left is launching his fund as the stock market has sold off and investors are worrying about frothy valuations of many companies. He is also starting up just as some other prominent long-short equity hedge fund managers are going out of business.

The S&P 500 ended trading on Monday just shy of confirming its second correction of 2018, hurt by fresh worries of an escalation of U.S.-China trade tensions and a sharp drop in big tech and internet names.

Left has started meeting with wealthy investors such as family offices, and said he wished he had launched his new fund six weeks ago, before the stock market began tanking.

Left, 48, who has spent the last 17 years running Citron Research, has earned millions by putting money behind his calls on companies. He earned an average annualized return of 89.98 percent between 2007 and 2017, according to the investor presentation seen by Reuters.

Calling himself a contrarian who is not afraid to speak up or change his mind, Left made news last week when he changed his tune on Tesla. Left said in a research note that the company’s Model 3 sedan is a “proven hit,” and that serious competition from other automakers for the plug-in car market had not materialized. He attributed his change of heart to a better understanding of the electric car industry and said he believed Tesla had turned the corner.

THE SHORTS SHINE

So-called activist shareholders such as William Ackman and Nelson Peltz publish research to pressure companies to improve shareholder value, by taking actions such as boosting profits or putting a company up for sale. “Short” activist shareholders like Left, on the other hand, seek to persuade other shareholders to dump their stock on the basis that a company’s flaws have not been priced in by the market.

The average activist hedge fund’s returns are roughly flat through the end of September, Hedge Fund Research data show. Several short activist hedge funds, on the other hand, have thrived.

Eiad Asbahi’s Prescience Point Capital Management is boasting gains of roughly 47 percent in the first nine months of this year after it alleged accounting fraud at trucking company Celadon, which is currently being investigated by the U.S. Justice Department. Sahm Adrangi’s Kerrisdale Capital, which made its reputation by betting against Chinese internet companies, was up 45 percent through the end of September. Ben Axler’s Spruce Point Capital and Carson Block’s Muddy Waters, which specialize in spotting corporate frauds, are delivering double-digit returns of roughly 18 percent, investors said.

Now that investors are looking for assets uncorrelated to the stock market, short activists are beginning to pull in fresh money. “By publishing our research (against a company) we lay out a more differentiated case and we find that to be more productive,” Axler said.

Left said he had several investment ideas for his fund and not all will be shorts.

“I think Wayfair Inc is way over-valued. I would be long on China,” Left said, adding that stocks like Alibaba Group Holding Ltd and JD.com have bright futures.

“For me, this is in my blood and I feel like I have another good 15 years left,” Left said.